Friday's US Retail Sales smashed forecasts with an outstanding 1.3% increase in November (against consensus forecast of 0.6%); ensuring that for the second week in a row, FX markets were left running for the exit of short USD bets. The dramatic slump in EURUSD from 1.4776 down to 1.4586 stood in stark contrast to the higher close for equity markets, and really underlines the divergence between the two asset classes on improving US data. It has been widely accepted that the major theme of 2009 has hinged on the inverse correlation between risk appetite and the USD; with good US data being a catalyst for USD selling - however the reaction to Non Farm Payrolls and Retail Sales has been completely the opposite. It is still too early to ascertain whether the behaviour of FX markets on these two isolated data points constitutes a fundamental change in the dynamic between the USD and risk appetite. It may simply be that the bout of USD strength is a reflection of the extent of short USD positioning, and that this was merely a correction on an unexpected shock. With no US data releases scheduled today, we will need to wait until Tuesday's Industrial Production data to test drive this theory, but we still feel that the tenets of structural USD weakness remain intact. One of these key arguments for a weak USD going into 2010 is undoubtedly the prospect for Fed interest rates, and on Wednesday we expect the FOMC meeting will cement our view that rates will continue to be low for long. Obviously, if there is a surprise shift away from their dovish stance then we may be in for a powerful reversal in USD flows, but we feel that policymakers will remain cautious in adjusting their rhetoric at this early stage. Wednesday will also see the release of US CPI, while Thursday brings Leading Indicators and the Philadelphia Fed manufacturing index.   Besides the FOMC meeting, there are three further central banks announcing rates this week - the Norges Bank and Riksbank are due during the European session on Wednesday, while the BoJ follows in the early hours of Thursday. All three are expected to keep rates on hold this month, but focus will obviously address the accompanying statements, with the Norges likely to be the most interesting in terms of signaling a near term hike.   Elsewhere, there will be an important week for ahead for the UK which is awaiting CPI (Tue), ILO Unemployment (Wed), Retail Sales (Thu) and PSNCR (Fri). After last week's BoE meeting and pre-budget report, it does not feel like we have swung convincingly either way in terms of a future trend for GBP. Most of the selling pressure on GBPUSD after the PBR, and then again in the face of Friday's USD rally met a lot of demand below 1.6200 levels, and there will need to be significant downside surprises in this week's UK data to give us the momentum to break lower.